The high deficit, low tax trap

[CHIMO]

The heart of any government is found in its budget. Politicians can make endless promises, but if the budget doesn't add up, politics is little more than mere words.

The United States is now caught in such a bind. In his recent state of the union address, President Barack Obama painted a convincing picture of modern, 21st-century government. His Republican party opponents complained that Obama's proposals would bust the budget. But the truth is that both parties are hiding from the reality: without more taxes, a modern, competitive US economy is not possible.

Obama rightly emphasised that competitiveness in the world today depends on an educated workforce and modern infrastructure. That is true for any country, but it is especially relevant for rich countries. The US and Europe are in direct competition with Brazil, China, India and other emerging economies, where wage levels are sometimes one-quarter those in high-income countries (if not even lower). America and Europe will keep their high living standards only by basing their competitiveness on advanced skills, cutting-edge technologies and modern infrastructure.

That is why Obama called for an increase in US public investment in three areas: education, science and technology, and infrastructure (including broadband internet, fast rail and clean energy). He spelled out a vision of future growth in which public and private investment would be complementary, mutually supportive pillars.

http://www.guardian.co.uk/commentisfree/cifamerica/2011/jan/31/state-of-the-union-address-useconomy